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Edited version of your written advice
Authorisation Number: 1013087047311
Date of advice: 12 September 2016
Ruling
Subject: Capital gains tax - deceased estate - Commissioner's discretion - two year period
Question
Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time to the two year period?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 20YY.
The scheme commences on
1 July 20ZZ.
Relevant facts and circumstances
The deceased owned a dwelling that was their main residence.
The dwelling was the deceased's main residence.
The deceased passed away in 20XX.
Two people were named as co-executors of the deceased estate.
One of the executors suffered a serious medical event in 20XX. This involved medical procedures and associated complications. It took 12 to 18 months to recover from the medical event. As a consequence, the executor was unable to attend to the timely sale of the dwelling.
Once the executor recovered from the medical event, the co-executors prepared the property for sale.
The property was placed on the market in 20YY, with settlement occurring within two months.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 subsection 118-130(3)
Income Tax Assessment Act 1997 section 118-195
Income Tax Assessment Act 1997 subsection 118-195(1)
Reasons for decision
In certain circumstances, section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the trustee of a deceased estate may disregard an assessable gain or loss made from the disposal of a property that passed to them in their capacity as trustee of a deceased estate.
In 1986, an explanatory memorandum was released which introduced capital gains tax (CGT) with the exemption period of 12 months. This meant that trustees or beneficiaries of a deceased estate had 12 months from the date of the deceased passing away to dispose of an inherited property to be eligible for the exemption. The intention behind this legislation was that the inherited property was to be immediately sold after the date the deceased passed away.
This period was extended to two years by Parliament from 1996 to allow for situations where the trustees or beneficiaries of a deceased estate had difficulty arranging an orderly sale of the deceased's property within the current 12 month period. This extension gave trustees and beneficiaries more time to make appropriate arrangements by extending the period by 12 months.
However, the Commissioner has the power under section 118-195 of the ITAA 1997 to extend the two year period to dispose of an inherited property in relation to CGT events that happened in the 2008-09 income year and later income years in accordance with the explanatory memorandum (EM) to the Bill that added the discretion to section 118-195 of the ITAA 1997, (the Tax Laws Amendment (2011 Measures No 9) Bill 2011). This enables a trustee or beneficiary of a deceased estate to apply to the Commissioner to grant an extension of the two year time period to dispose of the deceased's property, where the CGT event happens in the 2008-09 income year or later income years.
Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example:
• the ownership of a property or a will is challenged
• the complexity of a deceased estate delays the completion of administration of the estate
• a trustee or beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the two-year period (for example, the taxpayer or a family member has a severe illness or injury); or
• The settlement of a contract of sale over the property is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control.
These examples are not exhaustive, but provide guidance on what factors the Commissioner would consider reasonable to exercise his discretion to extend the two year period to dispose of an inherited property.
In this case, it is acknowledged that the property was not disposed of within 2 years of the deceased's passing due to unforeseen or serious personal circumstances arising during the two-year period therefore the Commissioner accepts that it is appropriate to grant the short extension that you have requested.
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